Investment Protection Outranks Investment Gain: Allianz Survey

Is the low-low of investment losses still worse than the high-high of investment gains?

By John Sullivan|October 07, 2013 at 10:06 AM

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Is the low-low of investment losses still worse than the high-high of investment gains? It’s a central thesis of behavioral economics: that investors would rather protect what they have than experience the euphoria of a rising portfolio. And now a new survey from Allianz Life seems to confirm the view.

The vast majority of Americans ages over age 25 with more than $200,000 in investable assets surveyed in the Allianz Life “2013 Investor Market Perceptions Study” said they were seeking some form of protection from losses as they accumulated assets for retirement.

In total, 95% of respondents said they would like a financial product with no potential loss or at least some level of protection from loss rather than one with unlimited potential growth but also unlimited potential loss. More specifically, more than three-quarters (76%) said they would prefer a product that offers a balance of potential growth (up to 10%) with a level of protection that shelters them from up to 10% of losses.

The majority of survey respondents have grown weary of market volatility. Despite a more than 1,000-point gain in the S&P 500 Index between March 2009 and August 2013, investors appear to remain hesitant to put money at market risk as nearly $8 trillion still sits in cash, according to the report. It further exposed this hesitancy as more than three-quarters (79%) of respondents said they believe the market will continue to be volatile, and nearly six in 10 (59%) noted market volatility as an economic concern having an effect on their retirement outlook.

“It’s clear that for many investors the trauma caused by the 2008 financial crisis is still being felt and is dampening their willingness to take on risk with their savings,” Allianz Life Financial Services president Robert DeChellis said in a statement. “Although we’ve seen strong equity markets this year, volatility remains a constant concern. With fixed income investments offering disappointing returns, there is a strong need for solutions that can provide solid upside potential but also protect against some of the downside risk that is keeping people from participating in the market.”

As they relate to retirement, beliefs that market volatility will continue were consistent across age ranges with at least three-quarters of Gen X/Gen Y (25-44, 82%), baby boomers (45-68, 80%), and older investors (69+, 75%) surveyed sharing that opinion. In addition to fears about equity markets, the survey also found these investors were unhappy with returns from less volatile investments. More than six in 10 (62%) of investors surveyed said they were challenged to find sufficient yield or return in today’s low-interest rate environment.

Continued market volatility was identified in the survey as a barrier to investing today — more than a third of respondents (38%) noted it was preventing them from investing idle cash. Wealthy investors indicated they wanted to put their money to work with a product that offers a balance of protection and growth.
When asked what they would do with $20,000 in idle cash today, more than six in 10 (63%) respondents said they would “invest today in a product with a balance of protection from loss and growth potential” — three times the number who said they would “invest today in a product with high growth potential” (20%) or “wait for the market to stabilize before investing” (11%). This echoes their top priority for retirement planning, as 84% of respondents agreed with the statement that “you should always have some kind of protection from loss, even if it reduces your potential gains.”

“Although consumers are still nervous about the market, they also want to move idle cash off the sidelines, provided they have some form of safety net,” DeChellis added. “A retirement product offering a balanced approach seems to be the preferred course of action for the current market environment.”

In addition, when asked which financial product is more attractive — one with a 4% return that is guaranteed not to lose value or one with an 8% return, but with the possibility of losing value due to market downturns — 70% of respondents chose the 4% product with guarantees. This response rose to 72% for those indicating they work with a financial professional.

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